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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Brief Exercise Debt Issued at a Premium (Straight Line)

Use the information from Brief Exercise 9-51.

Required;

Prepare the amortization table for Solomon’s bonds.

Use the following information for Brief Exercises 9-53 and 9-54:

Roman Corporation decided to issue long-term debt in order to pay off its short-term obligations. On January 1, 2021, Roman issued S900,000 in 7% bonds (payable on December 31, 2030) at 87. Interest is paid on June 30 and December 31. The market rate of interest is 9%.

To determine

Concept introduction:

Bonds:

Bonds are debt instruments issued by the borrower company to its lenders. Bonds are issued at a specified rate of interest and for a specified time period. The bondholders get a fixed rate of interest on the bonds and repayment of the bonds at the maturity date.

Amortization of Bonds premium or discount:

Bonds may be issued at a premium or discount. The premium or discount on issue of binds is amortized or the life of bonds using the straight line or effective rate methods.

To prepare:

The Amortization table for bonds using the straight line methods.

Explanation

The Amortization table for bonds using the straight line methods is explained as follow:

Solomon Crafts
Amortization Table
Straight line method
Date Bonds Par value Interest Payment Premium amortized Unamortized Premium Interest Expense Bonds Carrying Value
A B = A*5% C = 630000/8 D = D-C E = B-C F = A+D
Jan. 1, 2020 60,000,000 - - 630,000 - 60,630,000
Dec. 31, 2020 60,000,000 3,000,000 78,750 551,250 2,921,250 60,551,250
Dec...

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